By Don Kuehn

When the smell of fear is in the air, bad news can be good. For "contrarian" investors and homebuyers this is a great opportunity. Call me an optimist, but I think this is a great time to take advantage of rock-bottom prices on houses and cars and in the stock market. Investing when markets are down takes some daring, but it also carries the potential of huge rewards.

In almost all areas of the country, housing prices are very, very depressed. Nationally, prices fell 6.3 percent in January. Armed with a traditional 20 percent down payment and a willingness to swim against the tide, buyers are able to extract big discounts from a variety of desperate sellers—individuals, banks, builders.

In February, existing home sales jumped a surprising 5.1 percent (4.72 million units) according to the National Association of Realtors. A lot of that can be attributed to speculators and people snapping up foreclosed properties. But there are many first-time buyers among that group, too.

The February increase was lower than the year before, but it was better than most economists had predicted and was the best month-to-month gain (on a percentage basis) since July 2003.

Let's say that a year ago you were looking at houses priced around $245,000. Today, you can probably get the same house for about $200,000. With a 20 percent down payment, you would be financing $160,000. According to the mortgage calculator at MSN Money, a 30-year traditional fixed-rate loan at 4.5 percent carries a monthly payment of just $810; at 5 percent, it's $859; and at 5.25 percent, the cost of principle and interest is $884. That may well be cheaper than the monthly rent you're paying now.

Add to depressed prices and cheap loans (for those who can qualify) the potential of a federal tax credit of up to $8,000 and you could be looking at the best time in a very long time to buy a home.

This tax credit thing is pretty tricky. Most folks will want to consult a tax professional to be sure they are getting the maximum benefit. But if you buy a home in 2009, you may be eligible for a credit against taxes paid of as much as $8,000 if: (1) you are a first-time homebuyer or haven't owned a home in the past three years; and (2) your adjusted gross income is less than $75,000 ($150,000, if you're married). The credit phases out over the next $20,000 of income, single or married.

And, even buyers who owe no taxes could get a refund up to the maximum allowed. Is this a great country or what?

There are many factors to consider before you decide to dive into the housing market. In any discussion of real estate, you know the standard advice: location, location, location. Some cities, some neighborhoods, some school districts will see housing prices settle down before others will. Home prices are predicted to continue to slip even further in many places around the nation. Buying in one of these areas right now is probably not the best idea. So, be careful where you look.

For a kind of weathervane on house prices, keep an eye on the cost of renting in your area. Rents point which way housing prices are likely to go, according to Danilo Pelletiere, research director of the National Low Income Housing Coalition. Stable or rising rental costs are a good sign for potential buyers.

Bad news can be very good for those who are prepared to seize the moment and who have the proper safety net in place: a positive employment outlook, an emergency fund you can live on for six months, limited—or no-credit card debt, a high credit score, etc.

Investing in anything is risky right now, and real estate is no exception. Housing prices could continue to fall in your area even after you have moved into your new home, but experts say that shouldn't be a problem if you plan to stay put for at least five years.

Maybe the greater risk is being left behind when this great economic engine begins to roar again. It's your money, and you want it to work for you—not the other way around. This economy, bad as it is, offers you the chance of a lifetime to make sure your money does just that.

Don Kuehn is a retired AFT senior national representative. For specific advice relative to your personal situation, consult competent legal, tax or financial counsel. Comments and questions can be sent to dkuehn60@yahoo.com.